U.S. stocks tumbled on Friday as fears
about the stability of the top two home financing providers,
Fannie Mae and Freddie Mac, combined with oil at a record above
$147 to cloud the economic outlook.
Friday's slide capped a tumultuous week in which the S&P
500 joined the Nasdaq and the Dow in a bear market. It was the
Nasdaq and the S&P 500's sixth straight weekly decline, their
longest weekly losing streaks since 2004.
The broad market ended Friday's session down 1 percent as
investors worried that the two pillars of the U.S. housing
market could run short of capital, placing the fragile U.S.
economy at even greater risk.
Fannie Mae and Freddie Mac traded erratically and
ultimately ended lower. Pressure mounted for the U.S.
government to act more swiftly to prevent the housing crisis
from dragging down the nation's top mortgage finance agencies,
as Treasury Secretary Henry Paulson indicated that a bailout
was unlikely.
The anxiety surrounding the health of the financial system
was heightened all the more late Friday when U.S. banking
regulators swooped in to take over mortgage lender IndyMac
Bancorp Inc (IMB.N), the second-largest bank failure in U.S.
history and the fifth bank to close this year.
A jump in U.S. crude oil prices to a record above $147 per
barrel further soured investor sentiment on concerns about the
impact of higher fuel costs on corporate profits and consumer
spending.
"The bottom line is that we're in the middle of a financial
tsunami. This is a storm the likes of which this country hasn't
seen," said Peter Kenny, managing director at Knight Equity
Markets in Jersey City, New Jersey.
The Dow Jones industrial average (.DJI) fell 128.48 points,
or 1.14 percent, to 11,100.54. For the week, the Dow dropped
1.7 percent, its fourth straight weekly decline.
The Standard & Poor's 500 Index (.SPX) slid 13.90 points,
or 1.11 percent, to 1,239.49. For the week, it fell 1.9
percent.
The Nasdaq Composite Index (.IXIC) dropped 18.77 points, or
0.83 percent, to 2,239.08. It shed 0.3 percent for the week.
But all three indexes ended off their session lows. At one
point, all three indexes were down more than 2 percent, with
the Dow briefly dipping below the 11,000 level for the first
time since July 2006. In a volatile session, major indexes also
briefly turned positive in the late afternoon.
U.S. crude for August delivery rose $3.43, or 2.4 percent,
to settle at $145.08 a barrel on the New York Mercantile
Exchange, after earlier hitting a record of $147.27.
FANNIE, FREDDIE AND THE FED
Fannie Mae (FNM.N) fell 22.4 percent to $10.25, off a
session low at $6.68, and topped the list of the New York Stock
Exchange's biggest percentage losers. In contrast, Freddie Mac
(FRE.N) slipped 3.1 percent to $7.75, off a session low at
$3.89.
Senator Christopher Dodd, who chairs the Senate Banking
Committee, said the U.S. Federal Reserve was considering
allowing Fannie Mae and Freddie Mac to borrow directly from the
central bank, spurring speculation that the Fed may take action
as early as this weekend. That helped the two stocks come off
their lows during afternoon trading, with Freddie Mac at one
point fleetingly turning positive.
Financial shares were among the biggest drags on the S&P
500 as new signs of distress in financial market spooked
investors. An S&P financial index (.GSPF) fell 2.6 percent.
Shares of American International Group Inc (AIG.N) fell 3.8
percent to $23.08 as investors worried the giant insurer,
already beaten down by mortgage write-downs, could post more
losses.
Citigroup cut its estimates and price targets on several
U.S. banks, including JPMorgan Chase & Co (JPM.N) and Bank of
America Corp (BAC.N), on higher assumed losses on credit card,
home equity, residential construction, and a sustained weak
capital markets environment. JPMorgan shares fell 3.9 percent
to $33.16, while Bank of America shares slid 3.1 percent to
$21.67.
Lehman Brothers shares (LEH.N) slid 16.6 percent to $14.43,
a day after shedding 12 percent on discredited rumors of
customers pulling back their exposure to the investment bank.
CHEVRON DROPS, GE UP 2 CENTS
Chevron Corp (CVX.N) shares fell 4.2 percent to $92.25,
ranking as the top drag on both the Dow and the S&P 500, after
the second-largest U.S. oil company said it expects its
refining and marketing operations to post a loss in the second
quarter, somewhat restraining earnings that will be mostly
driven by record oil and natural gas prices.
Airlines' and retailers' stocks were among those most
adversely affected by soaring oil prices. An airline index
(.XAL) fell 5.6 percent, while an index of retailers (.RLX)
shed 2.1 percent.
General Electric (GE.N) was unable to hold on to gains amid
the broad sell-off, ending up a mere 0.1 percent, or 2 cents,
at $27.66, after it posted second-quarter profit on Friday in
line with Wall Street's expectations.
Shares of Anheuser-Busch Cos Inc (BUD.N), an S&P 500
component, soared 8.6 percent to $66.50 after a source said the
maker of Budweiser beer and Belgian-Brazilian rival InBev NV
() have begun negotiations for a friendly merger.
On the economic front, the Reuters/University of Michigan
Surveys of Consumers showed U.S. consumer confidence rose
unexpectedly in June with the help of retail discounts.
Trading was fairly active on the New York Stock Exchange,
with about 1.73 billion shares changing hands, below last
year's estimated daily average of roughly 1.90 billion, while
on Nasdaq, about 2.39 billion shares traded, above last year's
daily average of 2.17 billion.
Declining stocks outnumbered advancing ones on the NYSE by
2 to 1 and by about 15 to 14 on the Nasdaq.
(Additional reporting by Ellis Mnyandu; Editing by Jan
Paschal, Gary Hill)
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